Question

QUESTION 2

The Accounts Manager of Farhan Enterprise has assembled the following data to prepare the firm’s cash budget for July, August and September.

• Cash balances on June 30, is RM10,000. Minimum cash balance required is RM10,000.

• Net sales:

    Actual: April        RM 80,000                     Forecasted:      July          RM120,000

            May               90,000                                     August          140,000

            June             100,000                                     September    150,000

• All sales are on credit. The credit manager collects 50 percent of account receivable in the month of sale, 40 percent in the month following sale, and 8 percent in the second month following sale and 2 percent are uncollected.

• Cost of goods sold: 70 percent of monthly net sales.

• Purchase of raw materials and component parts account for 40 percent of the cost of goods sold. The firm pays for 80 percent of purchases in the month of purchases and 20 percent of purchases the month following purchase.

• Direct labor and factory overhead are 35 percent and 25 percent respectively of the cost of goods sold.

• Equipment purchased RM20,000 will be paid out in August.

Prepare the cash budget of Farhan Enterprise for July, August and September

Answer 1

	July	August	September
Beginning Cash Balance	10000	34320	43440
Add: Cash collected from Account Receivable	107200	126000	140600
Total Cash Available	117200	160320	184040
Less: Cash paid for Raw Materials & Components	32480	38080	41440
Less: Cash paid for Direct Labor	29400	34300	36750
Less: Cash paid for Factory overhead	21000	24500	26250
Less: Cash paid for Equipment		20000
Ending Cash Balance	34320	43440	79600

Explanations :-

Cash collected from Account Receivable	July	August	September
From May Sale:
(90000 * 8%)	7200
From June Sale:
(100000 * 40%)	40000
(100000 * 8%)		8000
From July Sale:
(120000 * 50%)	60000
(120000 * 40%)		48000
(120000 * 8%)			9600
From August Sale:
(140000 * 50%)		70000
(140000 * 40%)			56000
From September Sale:
(150000 * 50%)			75000
Cash collected from Account Receivable	107200	126000	140600

Cash Paid for Raw Materials & Components	July	August	September
For June Purchase:
(28000 * 20%)	5600
For July Purchase:
(33600 * 80%)	26880
(33600 * 20%)		6720
For August Purchase:
(39200 * 80%)		31360
(39200 * 20%)			7840
For September Purchase:
(42000 * 80%)			33600
Cash Paid for Raw Materials & Components	32480	38080	41440

Raw Materials & Components, Direct Labor & Factory Overhead	June	July	August	September
Total Sales	100000	120000	140000	150000
X Cost of goods sold (%)	70%	70%	70%	70%
Cost of Goods sold	70000	84000	98000	105000
Raw Materials & Components (40%)	28000	33600	39200	42000
Direct Labor (35%)	24500	29400	34300	36750
Factory Overhead (25%)	17500	21000	24500	26250